ombudsman news where credit s due

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1 issue 141 August ombudsman news essential reading for people interested in financial complaints and how to prevent or settle them where credit s due Caroline Wayman chief ombudsman Credit how much of it there is, and who s using it is rarely out of the news at the moment. In this light and with official figures showing how significantly this area has expanded it s not surprising we ve heard from growing numbers of people who ve taken out loans or finance. Our annual review, published earlier in the summer, showed complaints about consumer credit rising by 89% in the year to April 2017, following a 40% rise in the year before that. Of course, using credit can mean people have useful protection if things go wrong including the option of asking for our help in putting things right. As our case studies highlight, some people contact us after things they ve got on finance break down and they re left dealing with the knock-on effects. Other complaints such as disputes over car finance often stem from issues with communication or administration. The FCA s recent research into high-cost short-term credit suggests its tougher rules have made a difference. Overall, it seems fewer people are using this type of borrowing with no significant evidence of a waterbed effect, or of a rise in illegal money lending. And debt charities report that fewer people are coming to them for help specifically with problems relating to high-cost short-term credit. In our annual review, we explained that, while we d seen a rise in complaints about payday loans, many involved issues that arose in the past. More complaints might also reflect a growing confidence to come forward, following high-profile regulatory action. Even so, there s still work to do. Although not every credit complaint is about trouble with debt, we ve continued to hear from people who get in touch or subscribe

2 issue 141 August struggling. As preferences change for example, from payday loans to instalment loans we ve seen that lenders still aren t always making the right call in checking people will be able to repay what they owe. The Bank of England has given lenders a clear warning against complacency. And the FCA has pointed to a number of concerns including the cost of overdrafts that it will take steps to address. As the picture continues to develop, we ll keep on sharing what we re seeing. Caroline lenders still aren t always making the right call in this issue first quarter statistics page 3 problems with credit page 7 PPI latest update page 17 Q&A page 20

3 issue 141 August 2017 Q1: statistics 3 first quarter statistics a snapshot of complaints in the first quarter of 2017/2018 Each quarter we publish updates about the financial products and services people have contacted us about. We include the number of enquiries and new complaints we ve received, the number of complaints referred for an ombudsman s final decision, and the proportion of complaints we ve resolved in consumers favour. In this issue we show the new complaints we received during April, May and June 2017 and for comparison, the complaints we received during the same period last year, and during the whole of 2016/2017. In the first quarter of 2017/2018: We received 135,779 enquiries and 80,234 new complaints with 8,414 complaints passed to an ombudsman for a final decision. On average, we upheld 35% of the complaints we resolved. PPI remained the most complained-about financial product, with 42,401 new complaints. Current accounts were the second most complained-about product, with 5,229 new complaints. the financial products that consumers complained about most to the ombudsman in the first quarter of 2017/2018 payment protection insurance (PPI) 53% complaints about other products 47% current accounts 6% payday loans 4% hire purchase 2% car and motorcycle insurance 4% packaged bank accounts 4% credit card accounts 3% house mortgages 3% overdrafts and loans 2% buildings insurance 1% complaints about other products 18%... in Q1 in Q1 2016/2017 in the whole of 2016/2017 April - June 2017 April - June 2016 April March 2017 enquiries % of cases enquiries % of cases enquiries % of cases received upheld received upheld received upheld payment protection insurance 57,186 42,401 1,675 40% 53,045 43,569 7,402 57% 213, ,769 16,443 52% current accounts 7,772 5, % 7,344 3, % 31,128 17,434 2,188 27% car and motorcycle insurance 6,435 3, % 7,196 2, % 29,154 11,844 1,871 30% payday loans 4,384 3, % 3,963 2, % 15,007 10,529 2,225 59% packaged bank accounts 5,269 3, % 9,547 7, % 29,310 20,284 1,641 19% credit card accounts 3,712 2, % 3,496 2, % 15,253 9,104 1,371 29% house mortgages 3,118 2, % 3,729 2, % 14,830 10,411 1,935 31% overdrafts and loans 2,385 1, % 2,372 1, % 10,015 6,425 1,085 26% hire purchase 1,944 1, % 2,205 1, % 9,035 5, %

4 issue 141 August 2017 Q1: statistics 4 first quarter statistics continued... in Q1 in Q1 2016/2017 in the whole of 2016/2017 April - June 2017 April - June 2016 April March 2017 enquiries % of cases enquiries % of cases enquiries % of cases received upheld received upheld received upheld buildings insurance 1,832 1, % 2,108 1, % 7,831 4,815 1,134 35% point of sale loans 1,250 1, % 1, % 4,706 2, % travel insurance 1, % 1, % 5,047 3, % home emergency cover % % 3,163 2, % catalogue shopping % % 3,432 1, % self-invested personal pensions (SIPPs) % % 1,959 1, % term assurance % % 3,028 2, % deposit and savings accounts % % 2,644 1, % debit and cash cards % % 2,442 1, % contents insurance % % 2,440 1, % personal pensions % % 3,393 1, % specialist insurance % % 1, % pet and livestock insurance % % 2,487 1, % whole-of-life policies % % 2,374 1, % hiring / leasing / renting % % 1, % inter-bank transfers % % 2,820 1, % electronic money % % 3,909 1, % private medical and dental insurance % % 1,596 1, % mobile phone insurance % % 1, % investment ISAs % % 1,634 1, % debt collecting % % 3,057 1, % warranties % % 2,716 1, % mortgage endowments % % 2,973 1, % secured loans % % 1,694 1, % annuities % % % portfolio management % % 1,702 1, % credit reference agency % % 1, % income protection % % 1,413 1, % critical illness insurance % % 1, % instalment loans % % % legal expenses insurance % % 1, % roadside assistance % % 1, % share dealings % % 1, %

5 issue 141 August 2017 Q1: statistics 5 first quarter statistics continued... in Q1 in Q1 2016/2017 in the whole of 2016/2017 April - June 2017 April - June 2016 April March 2017 enquiries % of cases enquiries % of cases enquiries % of cases received upheld received upheld received upheld direct debits and standing orders % % % cash ISA - Individual Savings Account % % 1, % occupational pension transfers and opt - outs % % % cheques and drafts % % % merchant acquiring % % % store cards % % % conditional sale % % % commercial vehicle insurance % % 1, % personal accident insurance % % % money remittance % % card protection insurance % % % building warranties % % % unit-linked investment bonds % % % commercial property insurance % % % home credit % % % endowment savings plans % % % guaranteed asset protection ( gap insurance) % % % investment trusts % % business protection insurance % % % with-profits bonds % % % credit broking % % % spread betting % % % derivatives % % % income drawdowns % % % debt adjusting % % % guarantor loans % % capital protected structured products % N/A N/A N/A N/A % caravan insurance % children s savings plans % crowdfunding (loan-based) N/A N/A N/A N/A % debt counselling % EPP - Executive Pension Plans % foreign currency %

6 issue 141 August 2017 Q1: statistics 6 first quarter statistics continued... in Q1 in Q1 2016/2017 in the whole of 2016/2017 April - June 2017 April - June 2016 April March 2017 enquiries % of cases enquiries % of cases enquiries % of cases received upheld received upheld received upheld FSAVC free standing additional voluntary contributions % interest rate hedge % % logbook loans % Non-Structured Periodically Guaranteed Fund % OEICs (open-ended investment companies) % pawnbroking % PEP - personal equity plans % premium bonds % safe custody % savings certificates/bonds % state earnings-related pension (SERPs) % structured deposits % unit trusts % sub total 114,358 79,666 8,261 35% 116,757 81,029 13,508 48% 469, ,651 42,191 43% other products and services 21, % 20, % 74, % total 135,779 80,234 8,414 35% 137,392 81,709 13,634 48% 543, ,283 42,317 42%

7 < issue 141 August 2017 problems with credit 7 problems with credit complaints about consumer credit, Q1 2017/2018 complaints about consumer credit per 100,000 people, by postcode 60 consumer credit complaints by region 0 Greater London 1. South East 26% 2. North West 19% 3. Midlands 16% 4. North East 9% 5. Scotland 9% 6. South West 8% 7. East Anglia 5% 8. Wales 5% 9. Northern Ireland 2% In 2016/2017 we saw an 89% rise in complaints about consumer credit which includes products and services such as payday loans, hire purchase, and catalogue shopping. Excluding PPI, this area accounted for 17.5% of the complaints people brought to us compared with 9% in 2015/2016. In addition, having fallen slightly the year before, complaints about credit cards rose by 17%. As we explained in our annual review, we ve continued to hear from people who ve fallen into debt who may argue they shouldn t have been lent to at all. Another significant proportion of people are unhappy with the quality of the goods or services they ve got on credit, frustrated by administrative issues, or caught out by charges they hadn t expected. These case studies illustrate the breadth of the problems we see and how we approach putting them right. In addition to our regular quarterly snapshot (p3), we ve looked at where in the UK the approximately 7,500 complaints about consumer credit came from. Unsurprisingly, areas with larger populations generally account for more complaints in terms of numbers. However, if complaints from each postcode area are shared among the people there, some areas with relatively few people have a relatively high density of complaints.

8 issue 141 August 2017 problems with credit 8 Mr S complains that bank hasn t helped with credit card debt Mr S told us his bank had treated him unfairly after he d fallen into financial difficulties. He d been struggling to keep up with repayments on his credit card and a debt charity had advised him to ask the bank for help. Mr S said he d provided the bank with details about his income and expenditure. He said he d told them he could only afford to pay 1 a month towards his credit card and had asked them to reduce or freeze the interest while he was struggling. But he hadn t managed to reach an agreement with the bank and they d issued a default notice on his account. After Mr S complained, the bank had refunded some interest and charges. But they d then passed his account to a debt collection agency to recover the money he owed. Mr S thought this was unfair and asked us to look into it. putting things right We contacted the bank to ask for their side of the story. They sent us notes from their system showing they d been trying to contact Mr S about his debt for some months before he d sent them the income and expenditure form. And after they d received it, they d written back to say he d missed out information they needed but they hadn t received a response Mr S said he hadn t received the bank s request for information. In light of this, the bank had offered to refund the interest and charges on his account from the point when he d first contacted them. They d also said they d send him another income and expenditure form. We told Mr S that we thought the bank s offer was fair. He d be in the position he would have been in if the interest had been frozen when he first got in touch with them. So he wouldn t have to pay any more interest than he d originally owed. Mr S felt the bank had caused him a great deal of frustration, anxiety and stress at an already difficult time. We explained that, given that the bank had been trying to sort things out for some time, we didn t necessarily think it was unfair that they d passed his account to a debt collection agency. But we encouraged him to contact the agency to set up a suitable repayment plan, with the help of the debt charity who d helped him complain. case study 141/1

9 issue 141 August 2017 problems with credit 9 Ms B complains that finance provider won t repair phone bought on hire purchase Ms B contacted us about the mobile phone she d got on a hire purchase agreement. She said it had developed a fault not long after getting it, and she d contacted the finance provider to get it repaired. But they d refused to repair it, saying it wasn t the same phone she d been sold. After Ms B complained, the finance provider had offered to end the finance agreement but still wouldn t repair the phone. Ms B insisted it was exactly the same phone and asked for our help to resolve the situation. putting things right We asked the finance provider for their version of events. They said the model didn t match their records and insisted that the phone she was trying to get repaired wasn t the one they d sold her. We asked the finance provider to give us some evidence of the phone they d supplied to Ms B including the serial number. They said they hadn t recorded the serial number of the original phone so they weren t able to verify the details. In our view, it wasn t fair for the finance provider to refuse to repair the phone when they weren t able to provide evidence that it wasn t the one they d sold Ms B. We told them to repair the phone and to refund the payments Ms B had made under her hire purchase agreement while they d delayed doing so. case study 141/2 1 April 2014 Regulation of consumer credit transfers from the OFT to the FCA and everything moves from our consumer credit jurisdiction to our compulsory jurisdiction. 1 July 2014 The FCA puts in place new tougher rules for high-cost short-term credit restricting loan rollovers and the use of continuous payment authorities. 2 January 2015 The FCA introduces a cap on payday loan fees and charges. 29 November 2016 The FCA launches a call for input on high-cost credit and overdrafts. 31 July 2017 The FCA publishes feedback to its call for input and sets out the next steps

10 issue 141 August 2017 problems with credit 10 Mrs H complains that trouble with kitchen loan has left mark on her credit file Mrs H contacted us about a default marker on her credit file in connection with a point of sale loan she d used to buy a kitchen. She explained she d decided to cancel the kitchen order with the retailer, and had assumed the finance had also been cancelled. But she d later discovered the finance agreement was still in place and the business had put a default entry on her credit file for nonpayment. Mrs H had contacted the retailer who d apologised for the error and cancelled the agreement with the finance company. The finance company had agreed to remove the default marker, but it had later reappeared on her credit file. After Mrs H complained, the finance company offered her 150 to reflect the upset they d caused. But Mrs H didn t think they d gone far enough and asked for our help. putting things right Mrs H told us she d been unable to get a buy-to-let mortgage due to the default marker, losing out on considerable rental income. We phoned the finance company and asked if they d now removed the default from her file. They explained they d put in a request for it to be removed from her credit file, and they were waiting for confirmation of the change from the credit reference agencies. We also considered whether the offer made by the finance provider was fair. To help us, we asked Mrs H for more information to show why she believed she was out of pocket. Mrs H sent us paperwork and correspondence relating to her mortgage application. Having carefully reviewed this, we concluded there wasn t any evidence that she d lost out directly as a result of the default marker that had been applied to her account. We explained to Mrs H that although the situation was clearly frustrating we thought the finance provider had done enough to put things right. After hearing our opinion, she agreed to accept their offer of compensation. case study 141/3

11 issue 141 August 2017 problems with credit 11 Mr K complains that finance provider won t repair hirepurchase TV Mr K called us after a TV that he d got on hirepurchase had developed a fault. He said he d asked the finance company if they would repair or replace it under the terms of their service plan, but they d said they wouldn t. Mr K said he d then tried to get the TV repaired by a local firm but had been told it was unrepairable. Not sure what to do next, he asked us to look into the problem. putting things right We asked Mr K for more detail about the TV and how he d been paying for it. He explained he d paid off the hire-purchase agreement early, and a couple of months later the TV had stopped working properly. This was when he d first contacted the finance company to ask if they could help. We asked the finance company to explain their side of the story. They said that, as Mr K had fully paid off the hire-purchase agreement, he was the full owner of the TV which meant the service plan was no longer valid and he was now responsible for any repairs. They said that staff had explained this to Mr K when he d gone into their store to ask about repairs. We asked the finance provider for more details about their service plans. They told us that the service plan covered delivery and installation of goods, and that anything beyond that would be an optional extra that a customer would have to choose to take out. When we looked at the service plan documents we could see that Mr K hadn t selected any extra cover. So he hadn t ever had a service plan in place that would have covered the kind of repairs he needed. And he wouldn t have had any protection under the hire purchase agreement to fall back on either, as he d already paid off the agreement in full. When we explained the position to Mr K, he was disappointed to have to give up on the TV but accepted the finance provider wasn t at fault. case study 141/4

12 issue 141 August 2017 problems with credit 12 Mr W complains that catalogue shopping company won t refund faulty tablet Mr W got in touch with us about a number of issues with his catalogue shopping account. He said a tablet he d bought through his account had developed a fault after only two days. But the business wouldn t agree to collect it from him and refund the cost. He also wanted a refund of the insurance he d bought to cover it. Mr W was also upset that the business had closed his account and passed it to a debt collection agency. He said he d then found they d put a default notice on his credit file because he d missed payments and hadn t sent him statements when he d asked for copies of ones he hadn t received. putting things right Mr W told us he d ed the business about the faulty tablet two days after receiving it. But in their response to his complaint, the business said that Mr W hadn t contacted them about it until over a year after he d received it which meant it was outside the manufacturer s 12-month warranty. So they d recommended he contact his insurance provider. However, when we asked to see the business s records, we could see he d sent an two days after receiving the tablet, as he d said. There was another soon after in which he d complained that the business wasn t responding to him. It seemed there d been some confusion as Mr W had been corresponding about several items around the time. But as for the tablet, there was clear evidence for Mr W s version of events. We also needed to resolve the dispute about the statements. The business s records showed that Mr W had said he was going to cancel his direct debit and send all his statements straight back because of the unsatisfactory service he d received. The business records confirmed that post they sent to Mr W was often returned. So they d flagged Mr W s account as gone away and stopped sending things to him. In our view it was reasonable for the business to stop sending post in these circumstances as they couldn t be sure the correct person was receiving it. And Mr W could have accessed his account and seen how much he owed online. We explained to Mr W that he d breached his original credit agreement by stopping his direct debit. So we didn t think it was unfair for the business to have closed his account and passed on his debt. However, we didn t think it was fair that the business had applied a default notice to Mr W s credit file because they hadn t even tried to give him notice that they were going to do so. This meant he hadn t had the 28 days he should have had which would have allowed him time to make a payment or agree a repayment plan. To draw a line under what had happened, we told the business to collect the faulty tablet, and to refund the cost of the tablet and the insurance policy. We also told them to remove the default notice from Mr W s credit file. case study 141/5

13 issue 141 August 2017 problems with credit 13 Miss N disputes excess mileage charge on car finance Miss N phoned us after getting into a dispute with a car dealership. When her car finance agreement had ended after three years, she d given back the car. But the dealer had said she owed 600 because she d driven more than 7,000 miles in that time. Adamant she hadn t been told about this limit, Miss N had complained and had been offered a small discount as a gesture of goodwill. But Miss N didn t think she should have to pay anything at all and asked for our help to sort things out. putting things right We needed to establish what had happened when Miss N took out her car finance. In particular, we needed to find out whether the mileage limit and charges had been made clear to her. We asked the car finance company for paperwork relating to her agreement. They sent us a document headed up Personal Contract Plan Quotation, which explained that the finance company could claim an excess mileage charge if someone drove more than 7,000 miles a year. We asked Miss N what she remembered from when she signed up for the car. She said she d told the dealer she d be using the car to get to work, and that this would involve driving around 6,500 miles over the course of the year. She said she remembered being told the mileage limit was 10,000, which she d judged to be enough to cover any extra driving she did at the weekends. She pointed out she d been careful to do less than 30,000 miles over the three years she d had the car. Miss N said she hadn t seen the document setting out the 7,000 mile limit and we noted the document wasn t signed. When we told the finance company what Miss N remembered, they didn t challenge her account. On balance, we decided she hadn t been told about the mileage limit of 7,000 and that she wouldn t have agreed to it if she d known about it. So we told the finance company they shouldn t apply the excess mileage charge. case study 141/6

14 issue 141 August 2017 problems with credit 14 Mr A complains credit card company didn t apply default so debt-management plan is still on credit file Mr A wrote to us about information he didn t agree with on his credit file. He explained he d been in financial difficulties seven years previously and the defaults his creditors had applied had elapsed after six years. The exception was his credit card account, which hadn t been marked as in default meaning his debt-management plan was still on his records. Mr A said he d complained to the credit card company but they d stood by their decision not to mark his account in default. They told him he needed to clear his debt with the third party it had now been sold to. Mr A felt he d been treated even worse than someone who hadn t even tried to pay back what they owed and wanted our help. putting things right We asked the credit card company for more information about the history of Mr A s account. They explained they d frozen the interest for a year after he d said he was in financial difficulties. He d then been charged a reduced interest rate during the years he was on his debt-management plan. And the interest had been frozen again at the point they d sold the debt to the third party. The credit card company said they hadn t been obliged to do these things, but they d wanted to help Mr A. They d thought that keeping his account open, rather than putting a default marker on it, had been better for his credit file. Mr A had stuck to his debtmanagement plan for the most part so a default hadn t been triggered. However, while he d been on the plan, his repayments had barely covered the interest being added. By our calculations, it would have taken him over 100 years to repay the debt. And even now that his debt had been sold on and the interest frozen, it would take him around 20 years to pay it back at the current rate of interest. When we pointed this out to the credit card company, they offered to refund the interest Mr A paid in the months he hadn t paid 1 towards his debt. But in our view, this wasn t enough. We explained to Mr A that the credit card company weren t obliged to put his account into default. But we thought he d been charged a disproportionate amount of interest. And, overall, the credit card company hadn t treated him sympathetically and positively, as they d been required to. In light of everything we d seen, we told the credit card company to refund all the interest Mr A had paid while he was on his debtmanagement plan. case study 141/7

15 issue 141 August 2017 problems with credit 15 Mr G complains he shouldn t have been given flexicredit loan Mr G contacted us about a flexible credit loan a credit facility that works like a standalone overdraft with a credit limit. He explained he d had the loan since 2013, and his debt had just been getting worse and worse. He said had other loans with payday lenders, and was borrowing to cover his monthly expenses. And he thought the business, a payday lender, should have noticed there were problems both when they carried out their affordability checks, and during the time he d had the loan. putting things right Given what Mr G had said, we wanted to know more about the checks the lender had carried out when deciding whether to lend to him. But the lender wouldn t share these checks with us and said they didn t think Mr G s other borrowing made him ineligible for the flexible credit loan. They only told us that they d asked him for details of his monthly income and carried out a credit check. Because the lender wouldn t cooperate, we looked for evidence that would have been available about Mr G s financial circumstances at the time for example, his bank statements. And we decided, based on this information, that the lender should have been aware of his other borrowing. We accepted this other borrowing didn t automatically make Mr G ineligible for the credit. But it did mean the lender should have then carried out further and more rigorous checks to make sure Mr G would be able to meet his repayment commitments. Looking at Mr G s circumstances more closely, we didn t think further checks would have uncovered anything to suggest Mr G wouldn t have been able to make repayments. However, the guidance around this type of borrowing says a business should monitor a borrower s repayment record and offer help if they seem to be in financial difficulty. And we didn t think the lender had done this in Mr G s case. For example, the loan paperwork explained that it was designed to be repaid over a maximum of 10 months and warned it wasn t suitable for long term or regular borrowing. But Mr G s loan ran for 17 months and he frequently withdrew funds taking him up to his credit limit, just as his monthly repayment was due. In the first month, he d already taken out the maximum amount. We could see that Mr G had been relying on further borrowing to make his repayments and the more he borrowed, the further he got from the original repayment schedule. In fact, the lender had increased his credit limit, enabling him to take on more borrowing. This meant that after 10 months, Mr G owed the lender more than he d originally borrowed at a time when the loan should have been fully repaid. We thought it was obvious Mr G was in difficulty from the way he d been managing his account but the lender had failed to act as they should. Taking all this into account, we told the lender to refund all the interest and charges applied to Mr G s loan when he wasn t using the account as it was supposed to be used that is, when he was allowed to draw down further funds even though it looked like he might have been in financial difficulty. We told them to add 8% simple interest to this amount and to remove any adverse information recorded on his credit file. case study 141/8

16 issue 141 August 2017 problems with credit 16 Mr L complains that payday lender shouldn t have agreed to give multiple loans Mr L told us he d got into debt with several payday and instalment loans. He explained that the lender had already offered compensation for two loans following a review of lending decisions, after FCA regulation began. Mr L had complained that he shouldn t have been given his last two loans either but the lender had said they hadn t done anything wrong. Mr L disagreed and asked us to look into things further. putting things right We contacted the payday lender to find out more about the checks they d carried out before lending to Mr L. They said all of Mr L s applications had been automatically approved by their systems and nothing had been flagged to suggest further checks were required. It appeared the lender had asked Mr L about his income and expenditure before approving these last two loans. Based on what he d told them, we didn t necessarily think the loans would have been unaffordable. But we noticed Mr L s answers were different to those he d given when he d taken out previous loans. The lender also argued it had been several months since Mr L last applied for a loan with them. But there was virtually no break between his repaying the previous loan and taking out the further loans. So Mr L had been consistently in debt with the lender during that time. In our view, based on Mr L s history of borrowing with the payday lender, it was clear he was dependent on borrowing. And just because the lender s computer system had approved the loans, it didn t mean they should have automatically lent him more money. From what we d seen, we decided the lender hadn t carried out proportionate checks before making their lending decision. If they had, they d have realised the loans were unaffordable and wouldn t have lent to Mr L. We thought they d needed to do more to check what he d said about his expenditure and to get an up-to-date understanding about his financial commitments. We saw from Mr L s bank and loan records that he d been regularly borrowing from other short-term lenders around the time he d taken out the loans he was complaining about. He was also paying significant fees for having an unarranged overdraft and having direct debits declined. If the lender had carried out proportionate checks, they d have realised that Mr L wasn t likely to be able to repay more credit without borrowing more. In other words, the loans were unaffordable and, as a responsible lender, the lender shouldn t have given them to Mr L. Mr L wanted the lender to pay back all the money he shouldn t have been given. We explained that, since he d had the money and used it, we didn t think this would be a fair outcome. However, we told the lender to refund all the interest, fees, and charges Mr L paid for the loans, adding 8% simple interest. And because it wouldn t be fair for Mr L s credit file to be negatively affected by the lender s poor decisions, we told them to remove the adverse entries relating to these loans. case study 141/9

17 issue 141 August 2017 PPI latest update 17 PPI latest update Richard Thompson principal ombudsman and quality director On 29 August 2017, the FCA s new rules and guidance for PPI complaints come into effect beginning a twoyear timeframe for complaining about mis-sold PPI. On 29 August 2017, the FCA s new rules and guidance for PPI complaints come into effect beginning a two-year timeframe for complaining about mis-sold PPI. Richard Thompson, principal ombudsman and quality director, gives an update on what s been happening at the ombudsman in the run-up to this date. in your recently-published annual review, you said there was ongoing uncertainly around PPI. Why was that? When we published our annual review, the FCA had recently published its new PPI rules and guidance and said there d be a two-year deadline for complaining about mis-sold PPI. This all followed a Supreme Court judgment in late 2014, in the case of Plevin v Paragon Personal Finance Ltd. The judgment, and the FCA s rules, deal with a number of complex issues. But basically, what it all means is that some people may have a reason to complain based on the amount of their PPI premium made up of commission and profit share, and whether this was disclosed by the lender. It also

18 issue 141 August 2017 PPI latest update 18 depends on the type of credit the PPI was sold with, and when it was taken out and ended. The FCA needed to consider what Plevin meant for future PPI complaints, which involved consulting on new rules and guidance. While the consultation process was ongoing, we worked hard to meet our commitment of giving everyone who d complained to us an initial answer about whether we thought their PPI policy had been mis-sold. It did mean though that we didn t finally resolve as many PPI complaints we would have otherwise so we ended the financial year 2016/2017 with around 170,000 PPI complaints, of which 140,000 were affected by the Plevin judgment. what s the position now? In the last three months, we ve received a further 20,000 or so complaints about PPI and there are now around 150,000 complaints waiting for the answer they need from us about Plevin. Since the FCA s announcement this March and the greater certainty that brought we ve seen financial businesses focused on getting ready for the new rules and guidance. And at the ombudsman service, we ve been making sure we re in a position to move things forward as quickly as we can both for people who ve already contacted us, and those who might do in the future. For example, the FCA s Plevin rules say that if commission and profit share made up over half the cost of someone s PPI policy, then they should be refunded the difference. So we ve been talking to businesses to make sure they re clear about the information we ll need from them. We ve also been making sure we re ready for the FCA s upcoming communications campaign, which will run up until the complaints deadline of 29 August This is funded by a levy on the 18 of the largest financial businesses and is intended to prompt consumers to check if they might be affected by PPI mis-selling. But it s still the case that we don t know exactly how many people will decide to complain, and at what point in the next two years they might do so. Apart from the FCA s deadline, other time limits apply to complaining. So it s important people check their own situation and get things started if they think there s a problem with their PPI rather than waiting to do so till just before the deadline. In the meantime, we ve been making sure we re geared up to deal with what s likely to be a significant increase in demand. We ll also be updating our website to reflect all the latest developments and to make it easier for people concerned about PPI, and for businesses handling complaints, to find the information they need from us. Also, as part of the FCA s response to Plevin, it s told businesses they need to write to some customers whose complaints were originally rejected, but who could now complain about the issues raised in Plevin. By the FCA s estimate, that could be 1.2 million people but there s uncertainty around how many people will go onto complain, how many complaints businesses will be able to resolve themselves, and how many will need our involvement. In addition, we don t yet know how far claims management companies are going to ramp up their activities around PPI. do most PPI complaints still come to you through claims management companies? Yes, it s still a majority of PPI complaints over eight in ten at the moment. We ve always highlighted that it s easy and free to complain directly to businesses and to us. But the reality is that, in the past, it s often been text messages and ads from claims managers that have prompted many people to complain about PPI. Claims management companies have a regulator and have a clear code of conduct. What s most important is that the consumer involved gets an answer about their PPI as soon as possible which means claims

19 issue 141 August 2017 PPI latest update 19 managers working cooperatively with us to provide the information we need. so what are the next steps for PPI at the ombudsman? We ve been keeping in touch with people who are waiting for our answer about what Plevin means for their PPI complaint and we ll move things forward as soon as we can. We ll need to look at the particular circumstances of each individual complaint to let people know exactly where they stand. Longer term, it s clear we re still going to be dealing with PPI for some time. As I ve said, people who think they ve got a complaint have until 29 August 2019 to let the business know though other time limits may apply, so it s best to act sooner rather than later. If people then have six months from the business s final response to contact us, that takes us into 2020 and beyond. Between now and then, we re likely to be very busy. In the autumn, we plan to use ombudsman news to share some of our early insight into what we ve been seeing since the new PPI rules have been in place. And we ll obviously carry on talking to all our stakeholders so we re all working together to draw an important final line under PPI as quickly, fairly and efficiently as we can.

20 issue 141 August 2017 Q&A 20 Q? &A I saw earlier this year that you were recruiting for board members. How s that going? We mentioned in our directors report and accounts that there have been some changes to our non-executive board. Following a public recruitment exercise, Jenny Watson CBE joined the board on 1 June 2017 and Baroness Warwick and Sienne Veit will be appointed from 1 September Biographies of all our board members are available on our website. As part of its responsibility to ensure our service remains effective, the board has commissioned Cass Business School (part of City, University of London) on a project to help us understand emerging trends from new technology to sustainable workplaces and what they might mean for us. We ll continue talking to our stakeholders about this work over the summer. aren t you eventually going to be responsible for complaints about claims management companies? Following Carol Brady s independent review of claims management regulation in 2016, the Government decided a new regulatory framework was needed. The Financial Guidance and Claims Bill, which is currently going through Parliament, will mean the FCA will regulate claims management companies a responsibility that currently sits with the Ministry of Justice. As a result of this, it s expected that the Financial Ombudsman Service will look into complaints from people who are unhappy with the service they ve received from a claims management company. Currently the Legal Ombudsman handles these concerns. The Legal Ombudsman s figures show that around 95% of its current claims management company workload involves financial services claims and a significant number of these involve PPI. There s obviously a lot for us to be thinking about before these proposals come into effect and we ve already been talking to the FCA, HM Treasury and the Legal Ombudsman about the next steps. We ll keep on updating our stakeholders as things develop. Financial Ombudsman Service Exchange Tower London E14 9SR switchboard consumer helpline Monday to Friday 8am to 8pm and Saturday 9am to 1pm technical advice desk Monday to Friday 9am to 5pm complaint.info@ Just let us know if you need information in a different language or format (eg Braille or large print). Financial Ombudsman Service Limited. You can freely reproduce the text, if you quote the source. ombudsman news is not a definitive statement of the law, our approach or our procedure. It gives general information on the position at the date of publication. The illustrative case studies are based broadly on real life cases, but are not precedents. We decide individual cases on their own facts.